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Establishing the existence of a merger situation in the UK, like in the EU, is about the
question of quality of control What kind of control is sucient?
3 situations of control recognised:
1. Legal control (like in the EU), i.e if you acquire shareholding of 51% and over
2. De facto control - the acquirer will be considered to be controlling B even with
<51%; based on circumstances of case
3. 'Material influence' (not in the EU - BSkyB) - where you do not acquire control over
a business, but you have material influence over such a business and its strategic
business behaviour, i.e. 'acquisition of minority shareholding; situations where
acquire less than 25% but usually above 15% because it is recognised that even
with a minority stake, you can acquire some form of influence even if not control.
But not guaranteed, MAY be considered a merger situation, not automatic requires vetting of facts such as other shareholders stakes, behaviour of board,
etc. Below 15%, unlikely that there is going to be material influence, observed from
practice.
BSkyB v ITV - acquired 17.9% stake in ITV, did not notify the UK authority;
however when the authorities did look at the acquisition afterwards, found that it was
problematic and decided to conduct an investigation. When it came to the Q of whether
there was a relevant merger situation - yes, because although only 17.9% was acquired,
when it came to the assembly of the shareholders, the record of meetings showed that
not everyone showed up, which means that when BSkyB did attend with 17.9%, it
translated into quite a significant stake - so there was material influence. BSkyB was
forced to reduce its stake from 17.9% to 7.9% (check this %!!!!) in order to comply with
the rules; lost quite a lot of money ////good example for whether voluntary notification is
good or not; dierence between EU/UK regime (vn)
If there is a relevant merger situation - choice to notify or not. But normally if there is a
relevant merger situation, and the merger seems to give rise to competition concerns,
better to play safe and notify although you dont have to.
Because the EA 2002 provides two parallel systems for completed (s.22) and anticipated
mergers (s.33).
The same statutory procedure is applied to completed and anticipated in the Act
some sections appear to be repetitive;
If there is no relevant merger situation/ or a relevant merger situation and no competition
concern no need to notify.
What happens when a merger is notified in the UK?
Although no obligation to do so, notification is not for free payment scale is from
40,000 to 160,000: what determines which rate you pay is the turnover of the enterprise
you are acquiring.
Turnover <20 million fee of 40,000
by the parties which will satisfy the CMA that no reference is needed in the case > so if
the CMA accepts the undertaking, it cannot refer (it would otherwise result in situation of
double jeopardy)
Length of Phase I > Until the ERRA 2013 and changes it introduced, there was no fixed
time limit for Phase I, rather one of guidance. Nowadays, following the change, fixed time
limit of 40 working days for Phase I within which it must decide whether to refer or not.
This may be extended by 10 working days in situations for e.g. where the parties oer
commitments which the CMA needs to consider
Phase I is not a determination phase - but Phase II is a determination stage.
Thus at Phase II, the CMA must decide whether there is or isnt a relevant merger
situation, and whether this RMS has given rise to/is likely to give rise to SLC.
Determination happens under s.35/s.36
Phase II is 24 weeks in duration (s.39), which is possible is to extend by 8 weeks in some
cases.
Focus in Phase II is more on the second question (even though there may be grey cases
wrt the first question of a relevant merger situation e.g. in BSkyB)
Substantial Lessening of Competition guidance is there;
A merger in the UK is considered to give rise to SLC if it is likely to weaken rivalry
between firms to an extent that competition in the relevant market will not deliver the
important customer benefits mentioned in the EA.
SLC = weakened competition > consumer harm/no consumer benefits
Thus wrt SLC, it is also about the counterfactual(present) situation like in the EU - you
compare competition with and without the merger. Essentially, although the test is
dierent from the one in the EU, in terms of the analysis itself, there are similarities:
STEPS for Horizontal mergers >
Starting point remains with market definition - relevant product and geographic
markets
Then look at market concentration (square market shares of each and then add)UK also uses the HHI and it is divided like in the EU: (for guidance purposes)
0-1000 - no delta used because market not seen as concentrated
1000-2000 - delta of 250 points
2000-10,000 - delta of 150 points
Using theories of harm - unilateral and coordinated eects (found all over the world,
not just harmonisation between UK and EU)
Unilateral eects - focus on As position after the merger - UK guidance says
the following factors need to be looked at: (if they dont exist, unilateral
eects unlikely)
Market share of the merged entity
Absence or more importantly, existence of competitive pressures from
others on the merged entity
Whether the merger is going to lead to the elimination of an important
competitive force
Possible significant increase in market share
Possibilities open to customers e.g. option to shift in the market
Time scale - how long will it take for the remedy to be adopted and
implemented? is there an element of uncertainty?
Kind of action/Merger remedies is as follows:
Structural remedy - Divestiture, e.g. sale of subsidiaries
Behavioural remedy - e.g. CMA may impose a price cap wrt relevant market, or
prohibit tying and bundling, or prohibit exclusivity deals with customers
Recommend to the government to change a rule/regulation/law, e.g. removing
barriers to entry, etc
Unlike in the EU, in the UK there is a special category of Public Interest Cases: s.42-58
EA 2002
In the past, the UK used to use a public interest test, which was repealed with the
introduction of the EA. However, there still are public interest grounds recognised in
merger cases. Thus merger cases in the UK may be appraised on competition based
grounds as above, or on public interest grounds, i.e. whether the merger operates/has
operated against the public interest
When it comes to PICs, the Act gives the Secretary of State for Business the leading
role and decision making powers, so the CMA acts following his/her directions.
3 recognised grounds recognised as public interest: s.58
National security; e.g. merger between two arms production companies/aviation
sector
Media mergers; e.g. between two newspapers - issue of media plurality e.g. BSkyB
v ITV
Financial and economic stability (since the 2008 crisis), e.g. merger between banks
in trouble or between financial institutions
When a merger touches upon one of these grounds, it has a public interest element i.e.
while competition based considerations have to be looked at, but also need to look at
whether it operates/will operate against the public interest. Thus there will be analysis and
recommendation to SoS who will make the decision in this case.
Lloyds/HBOS - approved during financial crisis without a role given to the OFT at the
time, because the government was concerned - HBOS was failing, Lloyds wanted to
merge, which would have been problematic but because of the financial crisis at the time,
the government intervened and added this further ground to the EA and then enabled the
government to become the decision maker - and it approved it on public interest grounds,
despite being problematic on competition grounds; thus public interest considerations
can take importance over competition. Is it appropriate to let public interest trump
competition concerns? Here you can say it was a bad decision, as Lloyds was pulled
down by HBOS - thus sometimes, it is better to let companies fail?
Is it a good system to let SoS intervene? - last tutorial recording - yes
CMA decisions can be appealed to Competition Appeal Tribunal, and further to the CA
and the UKSC. (so far only IBA Health reached the CA, nothing so far reached the UKSC)